This is the twenty-sixth in a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”). The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs described the actions taken by various government agencies to
Defense Industry
It Makes No Deference: Fed Circuit Confirms Proper Standard of Review in Default Termination Challenges
Earlier this month, the Federal Circuit provided new guidance on the high burden that the government must carry to terminate a contract for default. In Dep’t of Transp. v. Eagle Peak Rock & Paving, Inc., the Federal Circuit held that the validity of a termination decision does not depend exclusively on the contracting officer’s reasoning — rather, the government must produce evidence during litigation to prove the contractor’s default under a de novo standard of review. The Eagle Peak decision illustrates that, absent a threshold showing that the contracting officer’s decision was pretextual, contractors challenging a default decision should focus on developing the “clean slate” record needed to rebut the government’s allegations, rather than disputing the contracting officer’s rationale (or lack thereof) for termination.…
Fiscal Year 2024 National Defense Authorization Act: More China-Related Measures on the Horizon
As the House and Senate Armed Services Committees prepare to mark up the Fiscal Year 2024 National Defense Authorization Act (NDAA), they are very likely to consider a number of China-related measures that have been recommended by the national security community and which could enjoy bipartisan support. These recommendations are generally focused on countering Chinese influence in the United States or increasing the United States’ relative power advantage in the Pacific region. …
Amici Curiae Submit Brief Urging Supreme Court to Adopt “Objectively Reasonable” FCA Knowledge Standard
The Coalition for Government Procurement and the National Defense Industrial Association filed an amicus brief in the consolidated Supreme Court cases United States ex rel. Schutte v. SuperValu, Inc. and United States ex rel. Proctor v. Safeway, Inc. The brief urges the Court to hold, consistent with the decisions of multiple federal courts of appeals, that a defendant cannot be liable under the False Claims Act (“FCA”) for “knowingly” submitting a “false” claim if (1) it acted in accordance with an objectively reasonable reading of an ambiguous statute, regulation, or contract provision and (2) there was no authoritative guidance warning it away from that interpretation. The Amici are represented by Covington & Burling LLP.
In SuperValu and Safeway, the Court is asked to resolve questions over the role that subjective intent plays in evaluating whether a defendant satisfies the FCA’s “knowledge” requirement. Petitioners argue that a contractor can be liable under the FCA for submitting a claim that is premised on an objectively reasonable interpretation of an ambiguous legal provision if the contractor recognized that the provision could be interpreted a different way. However, as the amicus brief explains, such a claim cannot be false for alleged noncompliance with the ambiguous legal provision that has not otherwise been clarified by authoritative guidance. Nor can such a contractor knowingly submit a false claim just because it was aware that the legal obligation may be interpreted differently.…
U.S. Foreign Military Sales Bounce Back
By Nooree Lee on
Posted in Defense Industry, FMS and DCS
On January 25, 2023, the Defense Security Cooperation Agency (DSCA) announced the U.S. arms transfer figures for FY 2022, showing that U.S. defense sales to foreign militaries bounced back after two years of decline. Arms transfers through the Foreign Military Sales (FMS) program increased year-over-year by 49% up to a total of $51.9 billion, and Direct Commercial Sales (DCS) transactions increased by the same percentage up to $153.7 billion.
These enormous single-year jumps in arms transfers reverse declining sales during the two preceding fiscal years, and arms transfers have now returned to nearly match FY 2019 levels. Unsurprisingly, Russia’s unprovoked invasion of Ukraine was a major driver, as Ukraine’s FMS transactions increased more than fivefold, and several European countries in close proximity to the conflict significantly increased their FMS purchases:…
So the Auditor Says You Violated CAS? Remember, Your Business Judgment Matters When Determining Compliance
Contractors often assume that government auditors have special authority to interpret the Cost Accounting Standards. That assumption is easy to understand — auditors frequently take the position that there is just one “right” way for a company to do its contract cost accounting, based on how other companies do things. But contractors should know that CAS is flexible and generally gives them options about how to comply, based on the circumstances of their business. In short, a contractor’s business judgment matters, and contractors can use it to push back on auditors who take an overly rigid view of CAS.…
Key Takeaways from the House Armed Services Committee Hearing on the Chinese Communist Party Threat to U.S. National Defense
Posted in Defense Industry
On February 7, 2023, the House Committee on Armed Services (the “Committee”) held a hearing entitled “The Pressing Threat of the Chinese Community Party to U.S. National Defense.” This hearing marked the Committee’s first in the 118th Congress and it focused on U.S. strategic competition with the Chinese Communist Party (“CCP”) of the People’s Republic of China (“PRC”). This overview is the first in a series of legislative updates we will provide on congressional oversight activities related to China throughout the Congress, including specific activities focused on trade controls, supply chain dependencies, and PRC-sourced telecommunications infrastructure in U.S. networks.…
DoD Seeks Early Input Regarding FY2023 NDAA Implementation in Acquisition Regulations
The Department of Defense is seeking early input on implementation of the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 (the “FY2023 NDAA”) in the Federal Acquisition Regulation and Defense Federal Acquisition Regulation. Although this early engagement process will not replace the formal rulemaking process, it presents a significant opportunity for government contractors, technology providers, industry associations, and other interested parties to provide their perspectives on acquisition-related provisions of this year’s NDAA. Providing early input can ensure that industry’s perspective is heard. Indeed, providing input at this stage may impact the future rulemaking process by guiding areas of focus and influencing ways the rule makers ask for input during the rulemaking process.
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NDAA Prohibits Government Purchase and Use of Certain Semiconductors
On December 23, 2022, President Biden signed the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 into law. The Act contains two significant prohibitions regarding the procurement and use of semiconductor products and services from specific Chinese companies and other foreign countries of concern that will come into effect in December 2027. …
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New Contractor Conflict of Interest Rules May Be Coming Soon, with a Special Focus on Consulting and Advisory Contracts
In legislation passed last week, Congress directed the FAR Council to issue new rules for contractor organizational conflicts of interest. The legislation itself did not create any new OCI standards, but provided factors for the council to consider, focusing on conflicts of interest for companies that act as consultants to the government.
It is unclear at this point what the precise nature and extent of the resulting changes to the OCI rules may be. But the new law makes it likely that there will be some fairly significant revisions. Congress set a deadline of Summer 2024 for the new regulations, so the contracting community should be on the lookout for a notice of proposed rulemaking in the coming months, and should not hesitate to submit comments for the government’s consideration.…